Statement of the ACP-ASIM to the Subcommittee on Health Committee on
Ways and Means, U.S. House of Representatives

May 11, 2000

Summary

The American College of Physicians-American Society of Internal
Medicine (ACP-ASIM) is the largest medical specialty society in the
country, representing over 115,000 physicians of internal medicine and
medical students. ACP-ASIM's members provide the majority of medical care
to adults in America, including Medicare beneficiaries, and are therefore
in a unique position to evaluate the need for and the appropriate
structure of any proposed Medicare prescription drug benefit.

ACP-ASIM strongly supports enactment this session of legislation to
provide a prescription drug benefit with sustainable financing, with the
highest priority going to help low-income beneficiaries. Such legislation
must include key consumer protections, particularly if the benefit is to
be restricted by a formulary administered by pharmacy benefit managers
(PBMs). Patients' access to beneficial drugs must not be hindered by
restrictive formularies--or other managed care controls--that are imposed
by PBMs solely to reduce costs, without regard to safety, effectiveness,
or ease of administration. Physicians should have the option of
prescribing drugs that are not on the formulary without cumbersome prior
authorization requirements. Beneficiaries should be informed of the impact
of the formulary on both co-payments and access to prescription drugs.
Also, they should be promptly notified of changes in the formulary. PBMs
or others defining a formulary should be required to consult with
physicians on the drugs that are included in the formulary.

Background

Prescription drugs are an essential tool for treating and preventing
many acute and chronic conditions. In 1965, when Medicare was first
established, pharmaceutical therapies were not as commonly available as
they are now, and outpatient prescription drugs were not nearly as
important a component of health care. Today, however, they are a primary
form of medical care and often substitute for more costly therapies, such
as hospitalization and surgery.

Pharmaceuticals are the fastest-growing component of national health
expenditures. In 2000, national drug spending increased by an estimated
11% compared with 7% for physician services and 6% for hospital care.
Since 1990, national spending for prescription drugs has tripled. By 2008,
that figure is expected to more than double from an estimated $112 billion
today to $243 billion. (Source: HCFA, Office of the Actuary).

The growing importance and increased use of prescription drugs have had
a disproportionate impact on the elderly, who use prescription drugs more
extensively than the general population because of high rates of chronic
illness. Although the elderly represent only about 12 percent of the
population, they account for over a third of spending on prescription
drugs. It is estimated that 80 percent of Medicare beneficiaries use
pharmaceuticals on a regular basis. Having drug coverage is a significant
factor affecting whether Medicare beneficiaries fill their prescriptions.
Lack of or limited drug coverage can expose beneficiaries to high
out-of-pocket costs that may result in under-utilization of prescribed
medications and adverse health outcomes.

In response to the increase in utilization and costs of prescription
drugs, managed care organizations have turned to cost-control techniques,
such as the use of formularies and PBMs. In fact, PBMs currently manage an
estimated 71% of the volume of prescription drugs dispensed through retail
pharmacies that are covered by private third-party payers. Several bills
pending in Congress, including the Administration's proposal, would use
PBMs to administer a Medicare drug benefit and give PBMs the authority to
determine which drugs would be available to patients under such a benefit.
PBMs are private companies that contract with health plans to limit the
costs of prescription drugs by managing drug utilization and obtaining
discounts from retail pharmacies and manufacturers. Formularies--lists of
approved drugs that physicians are permitted to prescribe--are typically
used by PBMs to limit access to expensive drugs.

ACP-ASIM Concerns with PBMs

As physicians, the members of ACP-ASIM know that the lack of
prescription drug coverage can significantly reduce patient compliance
with prescribed drug therapies. However, our members also recognize that
the cost of prescription drugs is escalating at a rate far greater than
health care spending generally and that legislation must work to create
and maintain a careful balance between the need for a prescription drug
benefit and the cost of such a benefit. It is critical, however, that cost
not be the primary factor in structuring any prescription drug benefit
program.

Physicians constantly are forced to strike a balance between ensuring
that their patients receive medication that is medically necessary and
minimizing their patient's out-of-pocket costs. Formularies and/or PBMs
that limit beneficiaries' coverage, either in terms of increased
copayments or deductibles, or by restricting the availability of certain
medications, increase the likelihood that patients will not be able to
comply with their physicians' recommended regimens. Moreover, patients
with serious illnesses requiring more costly medications may be
particularly at risk if PBMs are allowed to restrict coverage to only the
cheapest drugs. If drugs are prescribed that are not listed in the
formulary, patients may be penalized with higher out-of-pocket costs
(increased copayments or deductibles). PBMs also monitor the number and
types of drugs that physicians prescribe to their patients. Physicians who
prescribe more costly drugs may be pressured to give their patients less
expensive--but potentially less effective--alternatives. All of these
circumstances may result in adverse health outcomes.

PBMs need to consult with physicians on the drugs that are included in
a formulary. They need to educate patients about how their prescription
drug benefit works, what the impact will be on their out-of-pocket costs
if they need a drug that is not on the formulary, and how to obtain
approval for a drug that is not on the formulary list. Physicians should
be able to prescribe beneficial "off-formulary" drugs to their patients,
when supported by clinical evidence on effectiveness, without cumbersome
prior authorization requirements. Beneficiaries and their physicians need
to be promptly notified when formularies are changed or discontinued.

ACP-ASIM believes it is critical that any authorizing legislation on a
Medicare prescription drug benefit includes sufficient oversight of how
PBMs operate. As private companies, PBMs can exert a great deal of
influence over which drugs will be available to Medicare beneficiaries,
without any accountability to the public for their decisions. The PBM
industry makes their pricing decisions without public scrutiny, oversight
or regulation. The PBM industry is highly concentrated, with the top three
PBMsMerck-Medco Managed Care, PCS Health Systems, and Express Scripts -
together managing approximately 45 percent of prescriptions dispensed
through retail pharmacies that are covered by private third-party payers.
A Medicare drug benefit administered by PBMs needs to protect against
potential conflicts of interest that can arise when a PBM is owned by a
drug manufacturer, or has close ties to a drug manufacturer. ACP-ASIM
supports the disclosure of any financial relationships between PBM
companies, pharmacists and pharmaceutical manufacturers to patients and
physicians.

PBMs are coming under increasing scrutiny. The National Association of
Insurance Commissioners is currently considering whether to recommend
legislation to regulate the industry. Pending lawsuits contend that some
pharmacy benefit managers have violated their duty to act in the best
interest of patients. The U.S. Department of Justice is investigating
possible illegal kickbacks at the two largest PBMs. ACP-ASIM believes that
Congress should proceed cautiously in placing too much control of a
Medicare prescription drug benefit program in the hands of pharmacy
benefit managers. Cost-effective rather than cost-control practices
recognize the patient's well-being as primary and promote quality patient
care. Patients should have access to effective treatment rather than the
least expensive therapy. A prescription drug benefit will be a hollow
promise to beneficiaries if it allows PBMs to deny them access to
beneficial drugs principally on the basis of cost.

A method of pricing Medicare payments for prescription drugs should
be included that will balance the need to restrain the cost of the
benefit with the need to create financial incentives for manufacturers
to continue to develop new products. Rigid price controls that will
discourage innovation should be rejected.

The use of formularies should not be mandated. If a formulary is
instituted, by a PBM or otherwise, decisions on which drugs should be
included and evaluation of physician prescribing patterns should be
based on effectiveness, safety, and ease of administration, rather than
just costs.

Physicians should have the option of prescribing drugs that are not
on the formulary (based on objective data to support a justifiable,
medically indicated cause) without cumbersome prior authorization
requirements.

Beneficiaries should have access to comprehensive, accurate and
understandable educational and informational material about their
prescription drug benefits; such material should include information on
how the formulary functions and the impact of the formulary on
co-payments and/or deductible requirements, and access to prescription
drugs.

Beneficiaries and their physicians should be promptly notified (at
least ninety days notice) when formularies are changed or discontinued.

PBMs or others defining a formulary should be required to consult
with physicians on the drugs that are included in the formulary.
Formularies should be approved on a regional basis by a professionally
qualified body that includes practicing physicians using that formulary.

Any request by a benefit manager to alter medication regimes should
occur only when such requests are based on objective data supported by
peer-reviewed medical literature and which undergo review and approval
of associated managed care organizations'/managed behavioral health
organizations' pharmacy and therapeutic committees.

Physicians should continue to be able to prescribe covered drugs for
accepted off-label uses.

The prescription drug benefit should not require an expansion of
prescribing privileges for non-physician health professionals beyond
what can be supported based on their level of training.

Issues of generic and therapeutic substitution under the Medicare
program should be addressed through the development of a national system
that would allow physicians who permit generic substitution to:
designate substitution by only "A" rated generic drugs; require any
prescription medication crossing state lines, such as those as part of a
prescription filled by an out-of-state pharmacy, to use only "A" rated
generic drugs if a brand name is not required by the prescribing
physician; and require a national uniform policy regarding a phrase that
can be used to denote the need for a brand name drug.

PBMs should be required, with a patient's consent, to provide
treating physicians with all available information about the patient's
medication history.

PBMs should be required to disclose to beneficiaries and their
physicians any financial relationships among the benefit manager,
pharmacists and pharmaceutical managers.